Ziff Davis Said to Be Close to Buying Mashable___________________________________________

Pete Cashmore gathered employees of Mashable Inc. a couple weeks ago for an all-staff meeting to discuss the potential sale of the online news company he founded in his living room 13 years ago.

Cashmore, a 32-year-old Scotland native, wanted to keep control. Yet in recent months, he concluded Mashable would be better off as part of a larger company, and now he’s close to selling out to Ziff Davis, the digital media arm of J2 Global Inc.

Cashmore isn’t alone. Mashable is one of at least a half dozen online media companies -- including Defy Media and Uproxx Media -- weighing whether to sell, according to people familiar with their efforts. With ads tough to sell and new capital hard to raise, dreams of creating new digital behemoths have given way to a more realistic view that survival may hinge on being part of a larger company.

“The industry needs some consolidation,” said Rachel Lam, co-founder of Imagination Capital and former head of strategic investments at Time Warner Inc. “The people running small-scale digital publishing companies would all rather be part of a bigger entity.”

For good reason. Over the past couple years, everyone from venerable magazine publishers like Time Inc. and Conde Nast to digital upstarts Mashable and Uproxx have invested in original video in search of online advertising riches, a phenomenon dubbed the “pivot to video.”

Yet few companies can subsist on the advertising sales generated by videos embedded on Facebook Inc. and Google’s YouTube. The producers need money to develop more programming, but are struggling to grow as Facebook and Google vacuum up the vast majority of online advertising.

Itchy Investors

Their investors, meanwhile, are itching for a payoff. Traditional media companies and venture capital firms have invested billions of dollars in such businesses on the promise that new technologies and young readers would deliver rich returns and help traditional broadcasters and publishers find their footing online.

Their patience is wearing thin and money for future growth is drying up. Financial deals for digital media are on pace to shrink for a second straight year in 2017, according to CB Insights, which expects the number of transactions to slump to 120. That’s a 32 percent decline from the five-year high of 178 in 2015.

Digital media companies have notched some successes, and a few have demonstrated they have staying power.

Vice Media Inc., the independent, youth-minded outlet, now operates on cable TV, and with backers including Walt Disney Co. has a private-market value pegged at $5 billion. Vox Media Inc. has raised at least $300 million, including $200 million from Comcast Corp., and jointly sells ads with the cable operator’s NBC division. BuzzFeed Inc. has received $400 million from NBC, valuing the company at about $1.7 billion in late 2016.

Fusion Media Group, owned by Univision Holdings Inc., is seeking to sell a minority stake in its business, which includes the Onion and former Gawker Media assets like Deadspin, Gizmodo and Jezebel, for as much as $200 million, according to a person familiar with the matter who confirmed an earlier report by Recode. The company is talking to potential partners in Europe, Asia, Latin America and the U.S., the person said.

But even bigger publishers aren’t immune from the industry’s pressures. Vice and BuzzFeed will both miss internal revenue targets this year, the Wall Street Journal reported Thursday.

Prior Sales

Some outlets sold long before times got tough. The 2014 sale of Maker Studios to Disney for up to $950 million netted a hefty return for Time Warner, Upfront Ventures and Greycroft Partners.

But for every success, there are more outlets in limbo. Bryan Goldberg, founder of Bustle, a website aimed at women, sees his company potentially picking up some of the operations that eventually get sold.

“2017 was an incredibly difficult year for digital media,” Goldberg said in an interview. “Small and more challenged digital media companies have been hit hard. This is a time for companies with cash flow and capital to start acquiring the more challenged digital assets.”

Defy Media, the parent of online outlets like Smosh, Screen Junkies and Made Man, is considering a sale almost two years after raising $70 million in a funding round led by Wellington Management Co., according to a person with knowledge of the matter who asked not to be identified because the deliberations are private.

The company, which is based in New York, is in a much stronger position than Mashable, which once sought as much as $300 million but now appears ready to accept much less. Defy produces 75 regularly scheduled programs for television and online, and is working with major media partners including Viacom Inc.’s Comedy Central.

Uproxx Media, parent of the male-millennial focused BroBible and its namesake website, has hired an investment bank to evaluate possible offers, according to another person. The company didn’t respond to emails seeking comment. Through mid-2016, the company had raised more than $36 million from backers including WPP Plc, the world’s largest advertising company.

Once a trailblazer in online media, Mashable has fallen behind larger rivals that expanded into video sooner. While still growing, sales at the company will exceed just $50 million this year, with the company poised to break even, one of the people said.

That’s enough to make Mashable fodder for sale, not a long-term bet for an independent future.

“You need to have a unique audience, a unique advertising proposition and unbelievable creative,” said Doug Rozen, chief digital and innovation officer at OMD, part of the advertising company Omnicom Group Inc. “If you can deliver those three things, you are going to find yourself on the better end of the spectrum, or at least the survival end.”